Legal Brief

Posted on: 4/26/24

This week, the FTC voted on a final rule that will ban most non-compete clauses, stating that they are an “unfair method of competition.” In addition, the FTC recognized that it does not have jurisdiction over not-for-profit entities, but still reserved the right to evaluate an entity’s non-profit status and noted that some “entities that claim tax-exempt nonprofit status may in fact fall under the Commission’s jurisdiction.” There may be a portion of hospitals that claim tax-exempt status as nonprofits or identify as local or municipal hospitals that fall within the purview of the Rule. 

The Rule defines a prohibited “non-compete clause” to include any contract term, workplace policy, or term or condition of employment, written or oral, that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from seeking work, accepting work, or operating a business after prior employment ends. Other types of post-employment covenants (e.g., non-solicitation) could be attacked under the Rule if they have the effect of a non-compete. The Rules applies to non-compete clauses entered into prior to the effective date of the Rule, unless the non-compete was with a senior executive in a policy-making position. 

Absent any legal intervention (which I suspect we will see some litigation around this), the new rule will become effective in approximately 120 days. You will need to consult with your legal counsel to determine whether your entities are subject to the FTC’s final rule and whether you need to modify contracts and policies accordingly. (Maggie Martin)